The underlying Indian stock market growth is fueled by a burgeoning middle class with a voracious appetite for owning stocks.

The BSE Sensex is India¨s primary stock index. The Bombay Stock Market has been going for some 140 years (formed 1875) but the Sensex Index of 30 shares was established in 1986 and set its reference value of 100 on a base date chosen to be 1st April 1979. It is now 40 years since the base date and the index stands at over 39,000. For stock investors this represents an annual rate of growth over the 40 years of over 17%.

Rather than a measure of – except indirectly – of the economy or industrialisation, I see the BSE Sensex as primarily a measure of the appetite for investing in stocks. As such, it is a phenomenon of, and by, and for, the “middle class”. Much of the growth of the index is thus due to new owners of stocks entering the market.

It is thought that India has around 25 million owners of stocks. There are many definitions of the “middle-class”. I find defining the middle-class by the *number of households with a disposable, annual income of over $10,000* is probably the best indicator of the number of stock investors. By this measure the number of stock investors is about half the number of such households. Currently – 2019 – the number of such households is about 50 million and covers 120 – 150 million of the total population of 1,300 million.

The Indian population will probably reach around 1,500 million and start declining after 2050. It can be expected that the growth of the stock-owning middle-class will keep increasing till then and even for a decade or two after population decline begins. A not-unreasonable projection would be that the underlying growth of the stock index will follow the appetite for owning stocks.

The total number of shares available, the number of investors available and the price of the shares are inextricably linked with the state of the economy. An increasing appetite for a fixed number of available shares will follow the number of investors available. This would increase both share price and market capitalisation. However the number of shares available will, given even a modest growth in the economy, probably track the growth in total population. However, the underlying growth over the next 30 years is unlikely to reach the heights of the last 40 years. A saturation law applies and my expectation would be a growth in the index of between 2 and 3 times the current value. Since the number of investors would have grown by a factor of 8 this implies that the total capitalisation of Indian companies on the stock market could be closer to 20 times higher than now.